I am the founder of agency search consulting firm, AVIDAN STRATEGIES. I have more than 30 years of leadership experience with top global Madison Avenue agencies, managing iconic brands for companies like Procter & Gamble, Kraft Foods, Bristol-Myers, General Motors, Pfizer, Mars, The Wall Street Journal,Sprint and Coca-Cola. During the course of my career I advanced to become a Managing Partner of WPP's Berlin Cameron/Red Cell, EVP and head of business development for Saatchi & Saatchi, the first Global Executive Director Havas advertising, and EVP account management at Y&R. I served on the global board of directors of Havas advertising and the North America Executive Committee of Saatchi & Saatchi. During my leadership tenure both Berlin Cameron and Havas, respectively, were named "Agency of the Year" multiple times. I am a native of Israel, a former army officer, and a Columbia MBA. You can reach me at avi@avidanstrategies.com

Honey, I Shrunk The Agency

Creating intellectual property is an Art, not a Science. It’s inexact and can be wasteful.

In the case of big multinational ad agencies, with offices everywhere around the globe, the waste is obvious. Take an agency with 200 or more offices; chances are that only 5 or 10 of those offices are truly magnificent creative shops, capable of coming up with home run after home run. When it comes to multinational and Big Ideas, the mythical “20/80 rule” is probably more like a 5/95 at best.

For some Advertisers, contracting 200 offices makes sense, especially if they are lacking a cohesive global network of their own. For most, however, the traditional model is becoming uneconomical. They end up paying for what is predominantly a distribution system with inefficiencies and duplication (and often turf wars). A much better approach is to cherry pick the best offices in the agency network and custom tailor the compensation to output from these offices.

Today, campaigns can be created centrally or regionally and distributed locally through services known as “decoupling.” The creative agency creates the idea and produces the video and hands over the assets to the decoupling company for translation and then adaptation to local market and distribution. Common in Europe for about a decade, more U.S. based global marketers are now switching to decouple implementation from creation. This improves transparency, as marketers can manage the process more effectively using proprietary dashboards. Decoupling is the most powerful force in Advertising is the past 60 years. It means that even a small, single office, whether in Chicago or Charlotte, can become a virtual global network. The monopoly of the global ad agency networks on working with global marketers is about to end.

I believe that over the next few years the big agencies will start reducing redundancies in their footprint, as clients scale back compensation to elite offices that produce business-building ideas. Portland, OR-based Wieden+Kennedy, which works for top clients like Nike, Coca-Cola and P&G, among others, has offices in only 8 countries. London-based BBH, another top creative shop that works with Unilever and British Airways, has offices in only 7 countries.

Reducing the number of international offices, together with the emergence of mini-networks like W+K and BBH will change the agency landscape. As technology adoption accelerates, it will enable of local market implementation from regional hubs.

The squeeze on agency margins that we have witnessed on Madison Avenue in recent years will lead to something resembling the demise of the studio system in Hollywood. Then, as now, external economic pressures resulted in many studios buckling under unsustainable overhead in the 50s. The unbundling of the lucrative distribution system from the overhead-heavy movie making operations was devastating for the studios.

It led to the replacement of the studio system with ad-hoc assembling of creative teams for a movie project. Advertising too is likely to start relying more and more on freelance talent to be assembled for creative projects ad-hoc.

I believe that agencies will eventually evolve from using many “contract players”, on-staff art directors and copywriters to hiring freelancers, perhaps maintaining a small on-staff team of creative directors for the purposes of quality control. Production can be easily outsourced, to independents or the decoupling firms, who would want a slice of an incredibly lucrative aspect of the ad business. So can most other services – from strategists to project managers.

The Advertising business is about to go à la carte.

Avi Dan is the founder of Avidan Strategies, a marketing consulting firm that specializes in business and marketing advice, agency search, compensation, and advertising strategy. He spent 30 years in senior account management and business development positions with leading global agencies.

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I couldn’t disagree more with your last point. Going forward agencies are going to need more full-time resources, not less. The explosion of media channels means brands need to be active in not two or three media but ten or twelve, and they need to be able to respond in real time. It’s not work you can freelance out. It’s constant. Freelancers are expensive, and necessarily have to get up to speed on a brand before they can do their jobs. Concentrating all the knowledge an agency has accumulated from working with a brand over time into the minds of a few senior full-time people seems ludicrous, and is the antithesis of what clients sign up for when they opt into a long term relationship with an agency. I don’t see the upside.

You may be right that agencies will need more full-time resources, the question is whether clients will be willing to pay for them, and the overhead to be exact. Clients want two things out of their agencies – ideas, delivered efficiently. Agencies already bring in freelancers for high impact engagements, e.g., new business pitches or to save an account. Whichever one of us is right on the role of freelancers, I hope you’d agree with me that the agency model, which was invented in the mid-19th Century, needs updating.

I agree with the way the business is heading – it started long ago when my staff was constantly being cut only to be replaced with “contract” talents – both in art and copy. Quality control was very hard because we lost the development of real teams that could tackle client needs – and development relationships in the agency and with clients.

The ad agency business model is inappropriate, and has been for a long time. Exhibit A: The model was created by firms trying to act as ‘agents’ for the media, and sell time and space to clients while earning media commissions. This did not align the agencies with the clients’ best interests, but, rather, with the best interests of the media. Exhibit B: Clients perceptions of value received was often low, and pressure was put on agencies to reduce commissions. Agencies responded by going to fee-based compensation schemes based on hours worked. This approach is problematic, too, since clients don’t want to pay for time, but for value received. Exhibit C: Agencies often engage in speculative creative presentations for which they receive little if any compensation. This gets any future client relationship off to the worst possible start. The future: Agencies, in whatever form they take, will wake up to the real business issue their clients’ have: value received for money paid. Agencies’ business model must be structured on being able to measure value created for each client served. Which means that how agencies price for their services will have to migrate from time to outcomes. Clients don’t mind paying for results – and aligning agencies’ compensation along these lines will position the agencies as they should be positioned – as trusted advisors with outside-in objectivity.

I just got paid $6784 working off my laptop this month. And if you think that’s cool, my divorced friend has twin toddlers and made over $9k her first month. It feels so good making so much money when other people have to work for so much less. This is what I do, Rich45.cøm

Great job kicking the sore spot there Avi! Just as the dollars invested in marketing is on the rise again, and some agencies are starting to finally breathe… you come along and kick em! LOL

That said, you are correct that the model needs to change… HOW it will change I think is still up in the air. Will they break up? Or transform into something more like consulting firms? Some or all of the above?

Our industry is on the cusp of experiencing change on a colossal scale we haven’t seen since the introduction of television. The “traditional” agency is still vital, only it’s impact has eroded from every side. Whether it is the internet, the continuing wave of consolidation, the real prospect of true “integrated” marketing or the possibilities yet unseen in a digital world, agencies must look for ways to make certain they don’t become a footnote to history. Standard measures of performance do little to prepare for the future… and most of the old guard are looking at the tea leaves of history trying to figure out the future.

As I pointed out few years ago: “The new market leaders in the next several years will be determined by how well firms embrace the information flow that surrounds their own brand and their customers’ lives.”

I couldn’t agree more with what Avi has written but with a caveat. I’ve been running an “agency” of this sort for years and it’s allowed us to bring excellent work to our clients at moderate rates. I dare anyone to distinguish the work we do vs anything that a global agency can offer. My personnel are all ex-global, we understand the lay of the land and we cut to the quick far better than a global shop would.

On the other hand there is also a matter of knowing your limitations and acknowledging where your limits are extended, in some cases we’re not best suited for that but we’ll be the first to acknowledge it. A global shop may not, there is the prestige of winning a new account and of course overhead to compensate for. If more marketers would be willing to invest the time with SWAT teams assigned to specific projects rather than assigning the account as a whole to a global then there would be no reason both sides of the argument could not meet in the middle…albeit with different budgets in mind.